Income Tax Appellate Tribunal - Hyderabad
G.K. Kabra vs Asstt. Cit on 4 June, 2002
Equivalent citations: [2003]87ITD249(HYD)
ORDER
M.V.R. Prasad, A.M. These two appeals are filed by the assessee. They are directed against a common order of the Commissioner (Appeals)-V, Hyderabad, dated 4-1-2000 for the assessment years 1994-95 and 1995-96.
2. The appellant-assessee is proprietor of the following three units (1) Kabsons Control, Hyderabad (2) Kabsons Industries, Hosur, Tamil Nadu (3) G.K. Kabra Enterprises, Pune Separate sets of accounts are maintained for each of the above three units. The issues raised in these appeals relate mainly to the transactions effected in Kabsons Control, Hyderabad.
1. The appellant has distinguished career as an Engineer and as per the note given by him at page-10 of the paper-book Vol. II, he is recipient of various awards for inventions and product development, and there are 27 patents and designs to his credit. Every member of his family is in industry and trade.
2. The Two units, Kabsons Industries, Hosur and G.K. Kabra Enterprises, Pune run LPG gas filling stations under the brand-name 'Kabsons Gas'. Kabsons Gas is filled in gas cylinders of 2-Kg. capacity and the cylinders are sold with certain appliances like Gas lamp, stove, food warmer, blazing torch, infra-red heater, gas tondoor, etc. Each cylinder is sold with a particular appliance. The unit, Kabsons Control, Hyderabad does not run a filling station. It does not even manufacture cylinder or the appliances, but manufacturers regulators and valves used with the appliances/cylinders. In the return filed by the assessee, he described the business of Kabsons Control as under
"This is a proprietary concern promoted by Mr. G.K. Kabra, who is a qualified Engineer having more than 3 decades of experience in the Engineering line. The concern was promoted to manufacture LPG valves and regulators castings required by M/s. Kabsons Gas Equipment Ltd., who are one of the major suppliers to the oil companies of Government of India. However, the requirements of valves and regulators of other cylinders like Oxygen, Nitrogen, CO2 etc. were also kept in view. From the beginning they are doing machining of valves and die-casting of regulator bodies for M/s. Kabsons Gas Equipment Ltd. on job work basis, all the materials and tools being supplied by them. They are also dealing in gas."
3. At this stage, it may be mentioned that the case of the department is that there are various other concerns, besides the above three proprietary units of the assessee, with which the assessee is not only concerned, but he is the main person behind all of them. According to the revenue, the sister concerns of the assessee, or the concerns with which the assessee is concerned, are the following
(a) Kabsons Gas Equipment Ltd.
(b) Ideal Engineers Hyderabad (P) Ltd.
(c) Lata Engineering Company Ltd.
(d) Detective Devices (P) Ltd.
(e) SK Leasing Services On the contrary, the stand of the assessee is that all the above concerns have their own independent status and he has no major role with regard to the business of any of the above concerns.
1. All the above concerns are in the business of either manufacture of appliances/cylinders, or of running of filling stations/distribution of Kabsons Gas. It may be observed that M/s. Kabsons Control Manufactures valves and regulators required by M/s. Kabsons Gas Equipment Ltd. It may also be observed that M/s. Kabsons Control is mainly into the manufacture of valves and regulators and its business in gas seems to be only a subsidiary line.
4. The turnover particulars given by the assessee, relating to the three proprietary units are as under
"................... Unit Assessment years 1994-95 1995-96 Gas Others Gas Others Kabsons Control 61200.00 1550167.80 127500.00 2130284.60 G.K.K. Entp.
2330515.26 5676249.88 Kabsons Industries 1600578.90 315708.38 3527886.30 589841.19 3992294.16 1865876.18 9331636.18 2720125.79 Grand Total 5858170.34 12051761.97 "
5. From the above, it may be seen that the sale of gas in Kabsons Control constitutes a very minor portion of its turnover. Kabsons Control has allegedly purchased 7,200 cylinders in the year of account relevant for assessment year 1994-95 from Ws. Detective Devices (P) Ltd., Hyderabad, utilised them as plant in its gas business, and given them on loan to M/s. PKL Limited (formerly known as Primus Kabsons Ltd.) and received an amount of Rs. 17,28,000 as security deposit from M/s. PKL Ltd. Similarly, in the year of account relevant for the assessment year 1995-96, M/s. Kabsons Control has purchased 14,800 cylinders from Ws. Ideal Engineers at a cost of Rs. 32,58,476 and utilised them in its gas business as plant, and given them on loan to M/s. PKL Ltd. and received an amount of Rs. 36 lakhs from M/s. ML Ltd. as security deposit. It is claimed that the cylinders had a capacity of 2.3 kg., but each cylinder was filled only 1/2 kg. gas and the gas was sold to M/s. PKL Ltd., whereas the cylinder was given on loan. By this process, as each cylinder was filled with only 1/2 kg. of gas, the total gas sold during the year of account relevant for the assessment year 1994-95 was only 3,600 kgs. of gas. Similar is the procedure adopted for the year of account relevant for the assessment year 1995-96, and thus, the total gas sold during that year was of the order of 7,400 kgs. There was no sale of gas other than by way of 1/2 kg. of gas filled in each cylinder that was given on loan. The assessee has raised separate invoices for the sale of gas, and has disclosed in its return, the profit on the sale of gas.
6. Assessee claimed that security deposit was refundable and so not taxable; and as the cylinders were used as plant and cost of each cylinder was less than Rs. 5,000, it was claimed to be entitled for cent per cent depreciation under section 32(1)(ii) of the Act. The assessing officer in his order for the assessment year 1994-95 observed that the so-called loan of cylinders was actually a sale transaction. He observed that sale of cylinders was not allowed under Indian Explosives Act, and hence the loaning was undertaken to conceal the transaction of sale. According to him, though the assessee described the transaction as of loaning of cylinders, what it effected was only a sale of cylinders. He also observed that the assessee did not have the details of final users of cylinders and did not have control over the cylinders. He also observed that there was no proof of substituting cylinders lost by another ones free of cost and there was no refund of security deposit received by the assessee and that the cylinders can be filled by any other gas company. He rejected the claim of the assessee that the security deposit is not and cannot be treated as sale proceeds in the light of the decision of the Tribunal in the case of Detective Devices (P) Ltd. v. ITO (1987) 22 ITD 9 (Hyd) (SB). He accordingly held that though the transaction may be loan in form it is actually sale of cylinders in substance, and hence the so-called security deposit received by the assessee actually constituted sale proceeds in respect of cylinders. As he held that the cylinders were sold, he disputed the ownership of the assessee, and accordingly held that the assessee was not entitled for, depreciation. So, at the first stage, in the regular assessment order, he added an amount of Rs, 17,28,000 treating the so-called security deposit as sale proceeds. He also disallowed the depreciation claimed by, the assessee in respect of cylinders of Rs. 16,01,582. He accordingly determined the total income of the assessee for assessment year 1994-95 at Rs. 39,61,722 against Rs. 6,32,140 returned by assessee.
7. Adopting similar reasoning for assessment year 1995-96, as well, the assessing officer added an amount of Rs. 36,00,000 treating the so called security deposit received as sale proceeds; and further added an amount of Rs. 33,31,735 disallowing the assessee's claim for depreciation in respect of those cylinders, and thus, determined the taxable income of the assessee at Rs. 67,42,457, as against returned loss of Rs. 1,89,278.
8. The assessing officer subsequently. passed modification orders for the two years separately, both dated 28-12-1998, allowing the cost of cylinders as deduction from the security deposit treated as sale proceeds. By this method, he gave a deduction of Rs. 16,01,582 for the assessment year 1994-95; and of Rs. 32,55,476 for the assessment year 1995-96. On this basis, he determined the total income at Rs. 23,60,140 for the assessment year 1994-95 and at Rs. 34,10,722 for the assessment year 1995-96. It may be observed that by the said modification orders, what is brought to tax is only profit on the sale of cylinders along with the disallowance of depreciation on cylinders, as they were, according to the assessing officer only stock in trade and not plant and were sold out.
9. When the matter reached the Commissioner (Appeals), he took a somewhat different view. He was of the view that the entire transaction of purchase of cylinders, utilisation in gas business and the so-called loan to M/s. PKL Ltd. was totally sham. As it was a sham transaction, according to him, the assessing officer was not justified in bringing to tax the profit on the sale of cylinders, but the disallowance of depreciation was justified. He accordingly, upheld the disallowance of depreciation, but directed the assessing officer to delete the profit on the sale of cylinders. While coming to this conclusion, the Commissioner (Appeals) relied on his own appellate order dated 29-12-1999 in the case of M/s. Kabsons Gas Equipment Limited for the assessment years 1995-96 and 1996-97. He noted the plea of the revenue that the various concerns of Kabsons Group were using the plea of loaning of cylinders solely to reduce the taxable income and the transactions did not have any genuine commercial purpose. He initially noted the following statistics in respect of each of the concerns of the Kabsons group A. Kabsons Gas Equipments Ltd.
Assessment year Cylinders given on deposit to Income before depreciation Rs.
Depreciation claim on sylinder Rs.
Net total income Rs.
1995-95 PKL Ltd.
22354742 20882545 151044 1996-97
-do-
16467933 14592651 338376 B. Ideal Engineers Hyd. (P) Ltd.
Assessment year Cylinders given on deposit to Income before depreciation Rs.
Depreciation claim on sylinder Rs.
Net total income Rs.
1995-96 PKL Ltd.
8057722 2954232 Nil (B/f Unal) Depn.) AdJustment of B/F losses 4520725 1996-97 PKL Ltd.
9701053 15436071 (-)6566010 1997-98 PKL Ltd.
11033793 31833755 (-)21329808 C. Lata Engineering Company Ltd.
Assessment year Cylinders given on deposit to Income before depreciation Rs.
Depreciation claim on sylinder Rs.
Net total income Rs.
1995-96 Gasolic 9826772 7409756 1796774 1996-97 12611416 11290963 686291 1997-98 8912575 23677581 (-)15557762 D. Detective Devices I'vt. Limited Assessment year Cylinders given on deposit to Income before depreciation Rs.
Depreciation claim on sylinder Rs.
Net total income Rs.
1994-95 PKL Ltd.
486588 1133778 823430 1995-96 PKL Ltd.
3760341 2038960 Nil (after adj. of b/f depn.1540631) 1996-97 4061322 3519406 346361 E. Kabsons Control-Proprietor Shri G.K. Kabra Assessment year Cylinders given on deposit to Income before depreciation Rs.
Depreciation claim on sylinder Rs.
Net total income Rs.
1994-95 PKL Ltd.
1426994 1601582 (-)249253 1997-98 150448 2895009 (-)2744551 F. SK Leasing Services - Proprietor Shri Satish Kabra Assessment year Cylinders given on deposit to Income before depreciation Rs.
Depreciation claim on sylinder Rs.
Net total income Rs.
1996-97 Lata Engg.
3827546 2561713 2026626 1997-98 Kabson Ind. Ltd.
3848723 2850149 1620874 He observed that the sale of LPG constituted only a negligible portion of the total turnover for both Kabsons Gas Equipment Ltd. and M/s. Kabsons Control, Hyderabad. He also took into consideration the clarifications received by the assessing officer in reply to his queries, from M/s. Kabsons Gas Equipment Ltd. and from the Controller of Explosives, Nagpur. The Commissioner (Appeals) accordingly held in the case of M/s. Kabsons Gas Equipment Ltd., as under
"6.2. In view of discussion in the preceding paragraphs I hold that the entire business of purchase and sale of gas and loaning of cylinders to PKI-Limited was a colourable device and a dubious tax planning. The taxpayer, in this case, has adopted and carried into effect a pre-designed scheme through a set of transactions which served no business purpose apart from avoidance of tax which would otherwise have been payable. Under the circumstances, the case of the appellant cannot be said to be covered by the ratio of the decision of ITAT (Special Bench) in the case of Detective Devices Private Limited. Neither the ratio of decision of other cases cited by the learned A.R. of the appellant can be of any assistance to the various claims of the appellant. Accordingly, the rejection of claim of 100% depreciation on cylinders is confirmed.
6.3 The assessing officer has treated the loan transaction of cylinder as a sale transaction and has taxed the difference between security deposit and purchase consideration as profit. This part of the assessment order cannot be sustained. Since the entire transaction is being treated as an artificial and colourable device not having any commercial purpose, the transaction cannot be considered to be sale transaction. The assessing officer is therefore directed to exclude the profits computed by her in this regard from the taxable income of the appellant. The appellant gets relief for Rs. 23,97,455 for assessment year 1995-96 and Rs. 6,36,607 for assessment year 1996-97."
As the facts of the assessee are similar, the Commissioner (Appeals) adopted the reasoning given in his appellate order in the case of Kabsons Gas Equipment Ltd. discussed above, and held in the case of the present assessee also as under
"3.1 Since facts in the present appeals are similar to the facts in the case of Kabsons Gas Equipment Limited for assessment years 1995-96 and 1996-97 following my appellate order dated 29-12-1999 in the case of Kabsons Gas Equipment Limited, I confirm the rejection of the claim of 100% depreciation on cylinders in the present case. I also hold that loaning of the cylinders cannot be treated as sale transaction and the difference between security deposit and cost of cylinders cannot be taxed as profit on sale of cylinders. The appellant will get relief of Rs. 1,26,418 for assessment year 1994-95 and relief of Rs. 3,44,524 for assessment year 1995-96."
The Commissioner (Appeals) observed in the impugned order that the transaction of purchase of cylinders, filling them up with 1/2 kg. of LPG and loaning them have all taken place among sister concerns; and the entire transaction could easily take place directly between Ideal Engineers Hyderabad Limited and PKL Limited. He also noted that the sale of gas took place only at the time of loaning of cylinders, and the appellant did not sell any gas at the stage of refilling. He further noted that profit from the sale of gas (before depreciation) was negligible and the advantage of the transaction lays solely in terms of benefit of 100% depreciation on the cylinders, which almost completely neutralised the profit from the business of regulators and valves.
10. Before us, the assessee has taken the following grounds of appeal in the appeal for assessment year 1994-95 "1. The learned Commissioner (Appeals)-IV (hereinafter referred to as 'the Commissioner (Appeals) erred in not allowing depreciation of Rs. 16,01,582 on Cylinders used in your appellant's business. On the facts and in the circumstances of the case, your Appellant prays that the depreciation claimed be allowed.
2. The learned Commissioner (Appeals) erred in holding that your Appellant had violated the provisions of the Gas Cylinder Rules, 1981 and LPG (Regulation, Supply and Distribution) Control Order, 1993. On the facts and in the circumstances of the case, your appellant submits that the findings are erroneous and ought to be set aside.
3. (a) The learned Commissioner (Appeals) erred in holding that the entire business of purchase and sale of Gas and loaning of Cylinders was a colourable device and amounted to dubious tax planning. Your Appellant submits that the findings are erroneous and ought to be set aside.
(b) The learned Commissioner (Appeals) overlooked that as owner its liability had several legal/commercial consequences which cannot be ignored.
(c) Without prejudice to the above, your Appellant prays that in any event, the depreciation ought to be allowed on the loaning of Cylinders used in your Appellant's business.
4. The learned Commissioner (Appeals) erred in not considering the basis of the total facts of the Appellant and only relying on the facts of Kabsons Gas Equipment Limited.
5. The learned Commissioner (Appeals) failed to appreciate that the details/statistics as furnished by the assessing officer and reproduced at Paras 5.1 & 6.3 of the impugned order are erroneous.
6. The learned Commissioner (Appeals) erred in not following the decision of Hon'ble Special Bench of Income Tax Appellate Tribunal in the case of Detective Devices Private Limited reported in 22 ITD Special Bench 9 and also not following judgment of the Tribunal in the appellant's own case for the assessment year 1990-91.
7. Your appellant craves to leave to add, alter, amend, vary or change any of the grounds of appeal at any time before or at the time of hearing of the appeal as they may be advised."
The grounds taken in the appeal for the assessment year 1995-96 are almost identical, except for the amount stated in Ground No. 1 above, which in that appeal is mentioned as Rs. 32,55,476.
11. Before us, the case was initially argued by Shri K.L. Rathi, Advocate. He, however, withdrew his brief, vide his letter dated 4-3-2002, for personal reasons, when Shri Shankar, the learned counsel took over the case. Shri G.K. Kabra, the assessee himself was also available during the hearing of the appeals by this Tribunal, for giving any clarification. The assessee has also filed two paper-books, and subsequently, at the instance of the Bench, filed a number of papers. He has also filed one volume of written submissions and the case-law on the point at issue.
12. The main case of the assessee has been that so far as the treatment of security deposit as sale proceeds is concerned, the issue is squarely covered in his favour by the decision of the Special Bench of the Tribunal in the case of Detective Devices (P) Ltd. (supra). On the question of the genuineness of the transactions of purchase and loaning of cylinders, both the counsels sought strengously to point out that the entire gamut of business of the assessee at all the three places, viz., Hyderabad, Hosur (Tamil Nadu) and Pune (Maharashtra) is governed by various statutory rules and regulations, and any step taken by him has to have the sanction of law, and so there is no question of the transaction being sham as held by the Commissioner (Appeals). In support of this plea, our attention was invited specifically to the following provisions of Gas Cylinder Rules, 1981 issued under the Indian Explosives Act, "2 ...........
3. Filling, possession, import and transport of cylinders.(1) No person shall fill any cylinder with any compressed gas of import, possess or transport any cylinder so filled or intended to be filled with such gas unless :
(a) such cylinder and its valve have been constructed to a type and standard specified in Schedule I as amended from time to time by an order issued by the Chief Controller;
(b) the test arid inspection certificates issued by the inspecting, authority in respect of cylinder and its valve are made available. to the Chief Controller and prior approval of the said authority is obtained.
6. Marking on cylinders.Markings generally :
(a) Every gas cylinder shall be clearly and permanently marked in accordance with the following conditions by stamping, engraving or similar process :
(i) on the shoulder of the cylinder which shall be reinforced by forging or other means; or
(ii) on such a part which is inseparably bound with the cylinder and which is not or only negligibly affected by the stress due to the gas pressure within it.
(b) The name plate shall not be affixed to the cylinder by soldering if there is a risk of corrosion or embrittlement.
(c) In conjunction with the original marking, space shall be provided for stamping the test date obtained at the periodic inspection.
(d) Markings shall be so carried out and the letters and numerals used shall be of such shape and size, that the marking is clear and easily readable and does not give place for misreading.
(2) Marking on permanent and liquefiable gas cylinders :
(a) Every cylinder shall be marked with the following markings, namely :
(i) manufacturer's, owner's and inspector's marking and rotation number (these markings shall be registered with the Chief Controller);
(ii) specification to which the cylinder has been made,.
(iii) a symbol to indicate the nature of heat treatment given to the cylinder during manufacture or after repairs;
(iv) the date of the last hydrostatic test or hydrostatic stretch test, as the case may be, with the code mark of recognised testing station where the test was carried out. The code mark shall be registered with the, Chief Controller. In the case of liquefied petroleum gas cylinders, the quarter, and the year of test shall be given as an additional marking in af neck ring or on a shoulder plate;
(v) working pressure and test pressure;
(vi) tare weight;
Explanation.In the case of liquefiable gas cylinders, tare, weight shall include the weight of valve filled to the cylinder. The weight of the valve shall be indicated separately;
(vii) water capacity;
(b) All the markings, except the manufacturer's markings, which may be on the base, shall be stamped on the neck end of the cylinder.
7. Markings on valve.........
8. Identification colours.......
9. Labelling of cylinders.(1) Every cylinder shall be labelled with the name of the gas and the name and address of the person by whom the cylinder was filled with gas.
(2) A warning in the following terms shall be attached to every cylinder containing permanent or liquefiable gas, namely :
"Warning" Gas Cylinders Rules, 1981
(i) Do not change the colour of this cylinder (it) This cylinder should not be filled with any gas other than the one it now contains.
(iii) No flammable material should be stored in the immediate vicinity of this cylinder or in the same room in which it is kept.
(iv) No oil or similar lubricant should be used on the valves or other fittings of this cylinder.
(v) Please look for the next date of test, which is marked on a metal ring inserted between the valve and the neck of the cylinder, and if this date is over, do not accept the cylinder.
10. to 25 ..............
26. Owner's record.The owner of a cylinder shall keep for the life of each cylinder, a record containing the following information regarding each cylinder, namely :
(i) Cylinder manufacturer's name and the rotation number;
(ii) The specification number to which the cylinder is manufactured;
(iii) Date of original hydrostatic test/hydrostatic stretch test;
(iv) Cylinder manufacturer's test and inspection certificates;
(v) Number and date of letter of approval granted by the Chief Controller."
27. to 50 ..............
51. Licence for filling and possession.(1) No person shall fill any cylinder with compressed gas and no cylinders filled with compressed gas shall be possessed by anyone except under and in accordance with the conditions of a licence granted under these rules.
(2) The licensee shall be responsible for all the operations connected with the filling and possession of cylinders in the licensed premises.
52. No licence needed for filling and possession in certain casesNotwithstanding anything contained in rule 51, no licence shall be necessary for :
(a) filling a small quantity of compressed gas from one cylinder to another for the purpose of any experiment or test or for breathing;
(b) ...............
(c) possession of cylinder filled with
(i) liquefied petroleum gas when the total quantity of gas does not exceed 100 kg. at any one time;
(ii) any other flammable but non-toxic gas when the total number of cylinders containing such gas does not exceed 15 or the total weight of gas does not exceed 125 kg., whichever is less, at any one time;
53. to 57 ..................
58. Period for which licences may be granted or renewed.(1) A licence in Form D for the import of cylinders filled or intended to be filled with compressed gas may be granted for such period as the Chief Controller may deem necessary subject to a maximum of one year.
(2) A licence in Form 'E', or Form 'F for filling and storage of compressed gas respectively granted or renewed under these rules shall remain in force till the 31st day of March of the year up to which the licence is granted or renewed subject to a maximum of three years.
(3) ..........
59. to 61 ................
62. Renewal of Licence.(1) A licence may be renewed by the Chief Controller.
(2) Every licence granted in Form 'E' and Form 'F' under these rules, may be renewable for three financial years where there has been no contravention of the provisions of the Act or any rules framed thereunder or of any condition of the licence so renewed.
(3) to (8) ...............
13. In the light of the above rules, the assessee sought to argue that the assessee has complied with all the rules (1) for filling plant; (2) for purchase of cylinders; (3) for filling the cylinders with LPG gas; (4) for getting the cylinders filled with gas in permitted plant; and (5) for registration under Ministry of Petroleum. The details of the required permissions are mentioned at page 25 and page 27 of the Vol. II of the assessee's paper-book. In this context, we would like to reproduce page 27 of the assessee's paper-book which gives the details of the main licences obtained by the assessee in the context of procurement of LPG cylinders. As already mentioned, the issue raised in these appeals relate to the transactions in Kabsons Control, Hyderabad, and the other permissions obtained by the assessee in the context of his business in Hosur and Pune need not detain us here. So far as procurement of cylinders and filling thereto is concerned, the details of the permissions is given by the assessee are as under
S. No. Item Gas Cylinder Rule 1981, Provision Proof of Compliance
1.
Permission of Chief Controller of Explosives for purchase of Cylinders Rule 3(a) Obtained vide letter dated 10 April, 1985
2. Manufacturing and supply of cylinders specifically for Kabsons Control under Bureau of Indian Standards Certificates Rule 3(b) All cylinder Certificates are issued by Bureau of Indian Standards.
3. Chief Controller of Explosives permission to fill Kabsons Control Cylinder in Ideal Engineers Plant Rule 51 Permission obtained vide CCE dated 3-5-1985
4. Filling arrangements Rule 51 With Ideal Engineers and also own plant CCE letter dated 27-5-1986.
5. Issue of Cylinder Filling Permission by CCE Rule 3(1)(2) CCE issued the filling permission for the cylinders owned by Kabsons Control on the name of one of Filling Plant with whom Kabsons Control has made the filling arrangements.
14. We have already reproduced hereinabove the relevant Rules of the Gas Cylinder Rules, 1981, which have been cited by the assessee. The permission dated 10-4-1985, allowing the assessee to purchase the cylinders is at page 28 of the assessee's paper book, and it reads as under
"......................
Nagpur, Dated the 10th April 1985 To Mr. G.K. Kabra M/s.Kabsons Controls 761659/10, Dharam Karam Road Ameerpet Hyderabad 500 016 Sub : Purchase of upto 5 litre water capacity LPG cylinders from M/s. Ideal Engg. Hyderabad (P) Ltd.
Dear Sirs, Reference your letter dated 4-3-1985.
There is no objection to your purchasing empty LPG cylinders of various capacity upto 5 litre water capacity, manufactured by Ideal Engineers Hyderabad (P) Ltd. has approved by this department.
Please note that the cylinders in question should not however, be filled with LPG without obtaining prior approval of this office. The question of granting such approval will be considered only on receipt of the following particulars :
(a) Name and address of the filling plant wherefrom the cylinders will be filled with LPG;
(b) Vapour pressure and liquid density of LPG at 650C, to be filled in each of the cylinders;
(c) Manufacturers test and inspection certificate in respect of the cylinders indicating specification and other necessary details thereof;
(d) Necessary documents pertaining to the valves fitted to the cylinders indicating specification to which the valves conform.
Yours faithfully.
Sd/-
............."
It may be observed that the above permission only permits the assessee to purchase the LPG cylinders from M/s. Ideal Engineers Hyderabad (P) Ltd., whereas in the year of account relevant for assessment year 1994-95, the cylinders were purchased from M/s. Detective Devices Ltd., as we have already mentioned hereinabove. The permission dated 3-5-1985 mentioned against Sl. No. 3 in the statement on page 27 of the paper-book No. 11 of the assessee extracted above, reads as under
"
GO (SC) F-36/AP GO(SC) S-170/AP Government of India Department of Explosives Nagpur, Dated the 3-5-1985 To M/s. Ideal Engineers Hyderabad (P) Ltd.
Unit No. 2, Plot No. 42, Co-op Indl. Estate E.P. Gandhinagar, Balanagar P.O. Hyderabad-500 037.
Sub : Filling of LPG/ES-34 in an approved type of cylinder in your filling plant Unit No. 2. Balanagar, Hyderabad Licence No. GO (SC) F-36/AP and GO (SC) S-170/AP Dear Sirs, Please refer to your letter No. IEHP/CCE/MD/85/955 dated 25-2-1985 and No. IEHPL/MD/85/979 dated 4-3-1985 There would be no objection to your filling the LPG/ES 34 in approved type of cylinders for your sister concerns viz., M/s. Lata Engineering Company (P) Ltd., M/s. Detective Devices (P) Ltd., M/s. Kabsons Gas Equipment (P) Ltd. and Kabsons Controls subject to the observance of the following
1. Conditions of licence No. GO (SC)F-36/AP and GO (SC)S-170/AP are strictly complied with
2. The provisions of Gas Cylinders Rules, 1981 framed under Explosives Act, 1884 are complied with.
Yours faithfully.
Sd/-
............."
It may be observed in the light of the above permission that M/s.Ideal Engineers Hyderabad Ltd. has been permitted to fill the cylinders of M/s. Kabsons Controls Hyderabad and not of M/s. Primus Kabsons Ltd. towhich the assesseehas claimed tohaveloaned the cylinders. It may also be noted that even the Dy. Controller of Explosives has treated all the concerns referred to by him in the above letter as 'sister concerns'. Apparently, this description as to sister concerns was used by the Dy. Controller of Explosives only because the request of M/s. Ideal Engineers, in their letters referred to by him, contained such description. We are making these observations at this stage in view of the plea of the assessee that he has nothing to do with other concerns like Lata. Engineering Company, Ideal Engineers Hyderabad (P) Ltd., Detective Devices (P) Ltd., M/s. Kabsons Gas Equipment P. Ltd. & etc. The Licence dated 27-5-1986 referred to against Sl. No. 4 of the above table, furnished at Page No. 53 of the assessee's paper-book Volume-I, reads as under-
"
No. GC(SC)-36/AP Government of India Department of Explosives Nagpur, Dated, the 27th May 86
1. M/s. Ideal Engineers Hyderabad (P) Ltd.
Plot No. 42, CIE, Exp. Prog.
Gandhinagar, Balanagar, Hyderabad-37.
2. M/s. Kabsons Industries C-17-18, Sidco Indi, Estate, Hosur-636126 (Tamil Nadu).
3. M/s. Flame Gas Appliances (P) Ltd.
32 Civil Lines Roorkee-247667.
4. M/s. G.K. Kabra Enterprises, Gate No. 737, Post Velu, Talap, Bhor, Distt. Pune (MS).
Sub : Filling of ES-34 (LPG) in an various water capacity of cylinders in your filling plants Dear Sirs, Please refer to your letter No. IEHPL/MD/86/154 dated 26-5-1986.
There is no objection to your filling ES-34 (LPG) into cylinders of various water capacity which have been specific and approved by, this office.
Yours faithfully, Sd/-
(S.K. Bhardwaj) Controller of Explosives for Chief Controller of Explosives ............"
Specimen copy of the filling permission for the cylinders, referred to in the above table against SI. No. 5 reads as under
"
Government of India Department of Explosives No. G-3(42) 370/P/PM/96 Nagpur, Dated the 29/10/1996 To M/s. Primus Kabsons Ltd., 8-3-1087, Plot No. 48, Srinagar Colony, Hyderabad-500 873.
Sub : 33200 Nos. LPG cylinders bearing Sr. Nos. from 280236 to 467630 as per annexure A having water capacity 4.8 litres covered under certificate Nos. IE/BIS/PKC-798 to C-715, IE/BIS/PK/C-837 to C-846, IE/BIS/PK/C-904, C-933, C-940 to C-944, C-1001, IE/BIS/PK/C-1025 to C-1059 and IE/BIS/PK/C-1150 to C-1162 conforming to IS : 12586-88 specification manufactured by M/s. Ideal Engineers Hyderabad (P) Ltd., Inspected and certified by BIS-Permission for filling.
Dear Sirs, There is no objection to the filling of subject cylinders with LPG provided that---
1 . the cylinders are filled with not exceeding 2 kg. of gas.
2. the cylinders are provided with your logo prominently by means of stencilling, only from weld of the top-half of the cylinders. The size of the logo shall be at least 50 mm. high having line thickness of lomm.
3. the cylinders filled with LPG are not supplied to any person who is not holder of a licence to possess such cylinders unless otherwise exempted under Gas Cylinders Rules, 1981.
4. other relevant provision of the said rules are complied with.
Yours faithfully, Sd/-
(S.K. Shukla) Dy. Controller of Explosives for Chief Controller of Explosives Copy forwarded to M/s. Ideal Engineers Hyderabad (P) Ltd., B-14, Cooperative Industrial Estate, Balanagar, Hyderabad-500 037 with reference to his letter No. IE/GM/MLG/94/2009, 2015, 2027, 2028, 2033 dated 2/6/94, 21/9/94, 11/1/95, 16/2/95, 8/4/95.
Sd/-
for Chief Controller of Explosives.
.............
It may be observed that the above permission is given in respect of each batch of cylinders manufactured like C-715, C-837 etc. and even the individual numbers of cylinders are indicated. It may also be observed that the permission is in the name of M/s. Primus Kabsons Ltd., which is the loanee of the cylinders from M/s. Kabsons Control, and the permission is not in the name of M/s. Kabsons Control.
15. We reproduce hereunder relevant portion of the specimen copy of the certificate issued by the Bureau of Indian Standards, noted against SI. No. 2 in the table extracted above "Ideal Engineers Hyderabad Private Limited B-14, C.I.E. Balanagar, Hyderabad-500037.
IS : 12586 LPG Cylinder Certificate ISI CM/L : 2195758 Certificate No. : IE/BIS/PK/C-893 Date : 21-10-1994 Manufacturer :
Ideal Engineers Hyderabad Private Limited, Hyderabad Purchaser :
M/s. Kabsons Controls, Hyderabad.
Order No. :
001 Dtd. 25.10.94 Batch No. :
C-893 Cylinder description : 4.80 ltrs. water capacity two piece Brazed LPG cylinder working pressure 1657.32 KPa at 65 Degrees Centigrade Temperature.
This is to certify that the cylinders manufactured, inspected and tested in the presence of Shri J. Roy Chowdhury & N.P. Kawale of BIS Hyderabad as mentioned below during the period From 21-9-1994 to 21-10-1994 at M/s. Ideal Engineers Hyderabad (P) Ltd. meet the requirements of Specification : IS : 12586-1988 & Drawing No. : PK 2012/4.8/01/REV/2 (For details of valves inspection, refer Annexure A to this certificate) Method of manufacture :(1)
Brazing Process :
Copper Brazing in Furnace with controlled Atmosphere (2) Method of Support :
Joggled joint (3) Heat Treatment :
Passed through Brazing Furnace Temperature 1120C-1140C Inspection :(4)
Halves :
Satisfactory (5) Bung and Bung Brazing :
Satisfactory (6) Foot Ring Brazing and Marking :
Satisfactory (7) Internal Examination before closing in operation :
Satisfactory (8) Circumferential brazing & SI. No. Stamping :
Satisfactory (9) Checked for
(i) Bung threads :
Satisfactory
(ii) Cap threads (if provided) :
Not provided
(iii) Leakage with valve fitted to cylinder (where applicable) :
Satisfactory (10) Valve caps/collar (where applicable) :
Not applicable (11) Finishing and Painting :
Satisfactory Tests :
B.No. C-893 (12) Proof Test : 2.48 MPa :
Passed (13) Leakage Test 0.686 MPa :
Passed (14) Acceptance Test (From Annexure B-1) Serial No. of cylinders selected (1) 358849 (15) Hydrostatic stretch Test & Bursting Test Results (2) 359138
(i) Cylinder No. :
359200 Min Max
(ii) Permanent stretch% :
0.78 UTS MPa 300 307
(iii) Burst pressure 10.78 MPa Y.S. MPa :210 285
(iv) Nominal Hoop Stress 640 MPa% Elongation 45 47
(v) Cylinder burst without fragmentation Not parallel to the circumferential
-Bend test : Satisfactory Joint within 10 mm of circumferential joint Peel Test : Satisfactory Selection Exmn. penetration : Satisfactory Brazed Joint Tensile Test : Satisfactory Minimum thickness : 1.87 MPa (16) Quantity inspected :
Cylinders S.No. from 358821 to 359223 Serial Nos. of Rejected Cylinders NIL (from annexure B-2) Total No. of Cylinders passed 400 Cast No. of Sheet :
17519 Steel used :
As per approved drawing Properties of Raw Material from Supplier's Test Certificate M/s. NSL Ltd., Hyderabad Physical Properties T.C. No. 94094856 Dtd. 13-9-94
(i) Tensile Strength 304 MPa (31 Kgf/mm2)
(ii) Yield Strength 216 MPa (22 Kgf/mm2)
(iii) Elongation 40% Chemical Composition (from suppliers test certificate) Carbon 0.053% Sulphul-0.01% Silicon-% Manganese 0.28% Phosphorus 0.012% Nitrogen 0.0039% Sd/-
Quality Control Incharge Ideal Engineers Hyderabad (P) Ltd.
Hyderabad.
Sd/-
Inspecting Officer Bureau of Indian Standards N.P. Kawale Joint Director Bureau of Indian Standards 5-8-56C Nampally Station Road Hyderabad-500001.
.............."
It may be observed that the above certificate given by the Bureau of Indian Standards gives the name of the purchaser of each batch of cylinders and the batch No. is given at the top against certificate No. The plea of the assessee is that it is the owner of the batch as his name figures as the purchaser in the certificate, though the permission to fill the cylinders contained in the batch is obtained in the name of M/s. Primus Kabsons Ltd. (PKL). We shall advert to this plea of tile assessee later.
16. The terms and conditions governing the loan of cylinders to its customers by the assessee, are contained at pages 57 and 58 of the assessee's paper-book volume-I, and they are the same as the terms and conditions governing the loan in the case of Detective Devices (P) Ltd. (supra) considered by the Special Bench of the Tribunal (supra). So, we do not find it necessary to reproduce them. It has been made out before us that the assessing officer was totally wrong in holding that the case of the assessee is distinct from that of Detective Devices (P) Ltd. (supra) considered by the Special Bench. The learned counsel for the assessee has also pointed out that the assessee has been extended the benefit of the decision of the Special Bench in the case of Detective Devices (P) Ltd. (supra), vide orders dated 23-10-1990 in ITA No. 1920/Hyd/1987 and dated 23-10-1994 in ITA No. 242/Hyd/90, both of which are filed at pages 109 to 114 of the assessee's paper-book Volume-I. It is strenuously contended that the principles of judicial discipline require that the subordinate authorities should not violate the orders of the Tribunal, and the decision of the Special Bench of the Tribunal. is binding oil the Division Bench and the decision of the Special Bench cannot be flouted with impugnity even by the Tribunal. In this context, he has relied upon a number of decisions like that of the Apex Court in the case of Union of India v. Kamlakshi Finance Corpn. (1991) 55 ELT 433 (SC) and Bhopal Sugar Industries v. ITO (1960) 40 ITR 618. We do not find it necessary to elaborate the case-law cited by the learned counsel for the assessee in this behalf because we are not concerned with the applicability or otherwise of the decision of the Special Bench in the case of Detective Devices (P) Ltd. (supra). In other words, we are not considering the stand of the assessing officer that the security deposit received by the assessee for the loaning of the cylinders are sale proceeds because, according to him, no record of the customers was maintained by the assessee and there was no refund of the deposit. We may stress that we are not on this issue. We are considering the stand taken by the Commissioner (Appeals) that the entire transaction of purchase of cylinders and loaning of cylinders is a sham transaction, which, according to us, is altogether a different issue from the one considered by the Assessing officer that the security deposit has to be treated as sale proceeds. We may also mention here that this aspect was not considered by the Tribunal in its orders for the earlier years in assessee's own cases noted above.
17. The learned counsel for the assessee mentioned that M/s. PKL are a big manufacturers of all sorts of appliances, and they have a big net work and they have over 4,000 dealers and distributors throughout the country, and so, the loaning was done to a party, which can put appliances on the top of the cylinders. It is also claimed that the cylinders came back to the assessee for refilling, as he has filling stations at Pune and Hosur. It is also claimed that from a commercial angle, businessman in gas business should not entirely own the cylinders and he should also not entirely take them on loan. He should exercise a choice of buying some and taking on loan some, from the angle of commercial expediency. When he takes them on loan, they can be returned when the going is not good. When the business is going up, he can buy new stock on own account. So, he claimed that it is from the commercial angle assessee chose to purchase cylinders and to loan them.
18. The Commissioner (Appeals), according to the learned counsel for the assessee has proceeded on the facts of a different case, viz. M/s. Kabsons Gas Equipment Ltd., which, according to the assessee, has no semblence with the facts of the case before us. Actually, he called that it did not look like an order on him. When we enquired at him as to what are the differences between the two cases, he mentioned that the Commissioner (Appeals) was totally wrong in observing that the gas sales were a minor portion of the business of the assessee, whereas actually the gas sales constituted a major portion of the turnover. We have already extracted the turnover of all the three units of the assessee in para 5 above. The learned counsel for the assessee pleaded that the assessable entity in the present case constituted all the three units, and it is only for the purpose of operational control that the assessee named them differently. So, according to him, gas sales in all the three units should be clubbed together to ascertain the scale of assessee's business in gas. In other words, the plea of the assessee is that the Commissioner (Appeals) was not justified in considering the gas sales exclusively in Kabsons Control. But for this difference in approach to the matter, no other factual mistake in the figures adopted by the Commissioner (Appeals) was pointed out.
19. Adverting to the point made by the revenue authorities that the cylinders were filled only by 1/2 kg. in each, whereas they have a capacity of 2.3 kg., he mentioned that this was done only because the cylinders have to be filled at the stations of Ideal Engineers whose permission for storage had the limit of 8,000 kgs. gas. If the cylinders were filled to their full capacity, there was a risk of the permission of M/s. Ideal Engineers in respect of storage of gas being violated and to keep the gas within the permitted limit of storage of Ideal Engineers, the assessee chose to fill each cylinder with only 1/2 kg. of gas.
20. It is also mentioned that each cylinder contains name of the manufacturer, name of the owner and SI. No. and month and year of manufacture, ISI specifications like working pressure, test, etc. It is explained that even if a cylinder is rented, the owner remains the same, and he remains liable for the safety precautions. It is mentioned that the permission to purchase from a manufacturer is required, and the owner must have either a filling plant or arrangement to get it filled at some other licensed filling station. It is pleaded that the revenue authorities were totally wrong in assuming that the cylinders could be got filled at any filling station. It is stressed that the assessee has got the permission to acquire cylinders from M/s. Ideal Engineers, and the cylinders in question were approved by the Bureau of Indian Standards, which formed the basis for getting the filling permission of the Chief Controller of Explosives (CCOE), Nagpur, and the permission was obtained to get the cylinders filled at Ideal Engineers, and M/s. Ideal Engineers in its turn had the requisite permission to fill the cylinders.
21. At the instance of the Bench, the assessee filed a bundle of batch-wise permissions. It was noticed that the relevant permissions were not in the name of the assessee, but in the name of Primus Kabsons Ltd. (PKL), which is the loanee of the cylinders from the assessee. When this discrepancy was pointed out, the learned counsel for the assessee explained that the permissions have to be granted by the CCOE Nagpur in big numbers in a year, and as the said authority is not able to cope with the work, he would give permission in the name of one party out of the buyers figuring in the letter of the manufacturer, who seeks permission on behalf of buyers from CCOE. It is explained that over the years permission has been obtained in the name of concerns like Ideal Engineers, Kabsons Gas and PKL. It was also explained that when the assessee approached the CCOE, they mentioned that the concerned parties could segregate the details. It was also mentioned that the discrepancy in question is of minor significance because the name of the owner or the buyer from the manufacturer is reflected in the certificate issued by the Bureau of Indian Standards (BIS), and so, all concerned parties like the manufacturers, CCOE and the buyers were aware of the identity of the owner and simply because the permission was given in the name of a different party, it did not mean that the permission was given to the other party, and not the concerned owner.
22. The assessee has also relied on two letters received by the assessing officer in the case of M/s. Kabsons Gas Equipment Ltd., to which the Commissioner (Appeals) made a reference, and it is claimed that the said letters completely clarified the position and supported the stand of the assessee. As both the parties have relied upon those letters in support of their respective stands, it is useful to reproduce at this stage, the letters addressed by the assessing officer to CCOE and the two replies received by the assessing officer from him. The assessing officer addressed the following letter dated 8-3-1999 to CCOE "......................
DT. 8-3-1999 To The Chief Controller of Explosives, Department of Explosives, Government of India Nagpur Sir, Sub : Request for information u/s 133(6) of the Income Tax Act in the case of M/s. Kabsons Gas Equipment Ltd., 7-1-214/1/A., Dharam Karam Road, Ameerpet, Hyderabad assessment years 93-94 to 97-98-Reg.
During the course of assessment proceedings and appellate proceedings in case of above mentioned assessee, the following facts have been found :
(1) M/s. Kabsons Gas Equipment Ltd. (hereinafter referred as KGEL) is a company assessed with this circle. The principal business of this company is manufacture of LPG regulators and LPG valves which it sells to various gas companies like HPCL, IOC, etc. The profit, on the sale of these items is quite high which is reduced by the claim of 100% depreciation on various cylinders which the company shows as 'plant'. In order to show that the cylinders were used as plant. M/s. KGEL is showing that it is filling 1/2 Kg. of gas in each cylinders of 2.3 kg. volume which they claim to purchase from M/s.Ideal Engineers Hyderabad Ltd. They also claim that they sell Kg. of gas filled in each cylinder to M/s. Primus Kabsons Ltd. In this process, they claim to loan out cylinders to M/s. PKL and hence justify their claim that since cylinder is required to fill in kg. and sell the same to PKL, the same is plant on which 100% depreciation shall be allowed.
M/s. Kabsons Gas Equipment Ltd. informed that it has been filling 1/2 kg. gas in the cylinders of the capacity of 2.3 Kg. and dispatching the same to M/s. PKI-Ltd. They also informed that as and when the customers of M/s. PKL require M/s. PKI-in turn fills in the balance quantity of gas. When specifically required to furnish the licence obtained for filling gas in cylinders from the department of Explosives as mandatory under rule 3(1)(b) of Gas Cylinder Rules, 1981, M/s. KGEL informed that it is not required to obtain licence cylinders owned by it are filled in the plant of M/s. Ideal Engineers (Hyd) Ltd. which is holding the required licences.
(2) M/s. KGEL also filed a letter dated 22.2.95 from department of' Explosives, No. G-3(42)/370/P/PM-94 in which permission has been granted to M/s. Primus Kabsons Ltd. to fill gas in cylinders of specified batches. However, in the proceedings before the Tax authorities, these cylinders are claimed to be owned by M/s. KGEL and the same are claimed to be loaned out to M/s. Primus Kabsons Ltd. after filling-in- kg. of gas in each of the cylinder. The remaining portion left out of 2.3 Kgs. is claimed to be filled subsequently by M/s. Primus Kabsons Ltd.
(3) It may be observed here that M/s. KGEL claimed that rule 51 is not applicable to it as no cylinder filled with gas is stored by it in any godown other than gas filling plant of M/s. Ideal Engineers (Hyderabad) Ltd.
(4) In this connection, the Chief Controller of Explosives (CCE) is hereby requested to clarify
(a) M/s. Ideal Engineers (Hyd) Ltd. has a licence as required under rule 3(1)(b) of the Gas Cylinder Rules, 1981. Whether it can permit any other person to fill his cylinders without obtaining permission or licence from CCE.
(b) Whether M/s. KGEL can fill in 1/2 Kg. gas in the above cylinders owned by it before loaning it to M/s. PKL without obtaining a licence from CCE.
(c) Whether the Cylinders in each of which Kg. gas has been claimed to be filled by M/s. KGEL, before loaning it to M/s. PKL be subjected to licence for storage of cylinders under rule 51 of the Gas Cylinder Rules, 1981 or
(d) Whether M/s. KGEL has submitted any specifications and plans to CCE under rule 55 of the Gas Cylinders Rules for filling and storage of cylinders or not.
It is requested that Chief Controller of Explosives may clarify on above queries as per law and on facts from the records. As some of the assessments are getting time barred by 31-3-1999, it is requested that the above be clarified immediately but not later than 15-3-1999. The above clarifications may please also be sent on FAC No. 040-237445.
Yours sincerely, Sd/-
(Kavita Pandey) Deputy Commissioner of Income Tax Circle 4(5), Hyderabad . ............."
The CCOE replied to the above letter, vide his letter dated 15-3-99, which reads as under
"...............
Nagpur, Dated the 15/03/99 To The Dy. Commissioner of Income Tax, Circle 4(5), Hyderabad.
Sub : Request for information under seciton 133(6) of the Income Tax Act in the case of M/s. Kabsons Gas Equipment Ltd., 7-1-214/1A, Dharam Karam Road, Ameerpet, Hyd.-AYs 93-94 to 97-98-reg.
Madam, Please refer to your letter dated 8/3/99.
The parawise reply as requested is appended below
(a) M/s. Ideal Engineers Hyderabad Ltd. is holding licence under Gas Cylinder Rules, 1981 for filling and storage of RLNG/ES. 34 in cylinders as provided under rule 51 of the Gas Cylinder Rules, 1981. Rule 3(1)(b) refers to individual cylinder with specific reference to its standard, design approval and obtaining filling permission in respect of the said cylinder. Any licensee holding valid licence for their bottling plant can fill the cylinders which have been specifically approved for filling by Chief Controller of Explosives. It is informed that M/s. Kabsons Gas Equipment Ltd. have been permitted vide this office letter No. GC(SC)F-38/AP/GC(SC)S-171/AP dated 3/5/85 to get their cylinders filled through M/s. Ideal Engineers Hyderabad Ltd. subject to observing the relevant conditions of the licences under Gas Cylinder Rules, 1981 as the provisions of the Gas Cylinder Rules, 1981.
(b) As stated above in para (a) above, M/s. Kabsons Gas Equipment Ltd. has been permitted to get their cylinders filled in the bottling plant of M/s. Ideal Engineers Hyderabad Ltd., however, it does not specify the modality of filling. In normal practice the cylinders are filled in single step : The gas charged in to the cylinder should not exceed the filling ratio as per rule 54 of the Gas Cylinder Rules, 1981.
(c) M/s. Ideal Engineers Hyd. Ltd. is holding storage Licence under Gas Cylinder Rules, 1981 for storage of 8,000 kg. LPG filled in cylinders. So long the cylinders are stored at the bottling plant of M/s. Ideal Engineers Hyd. Ltd., they are covered under the said licence provided at no time the storage capacity shall exceed 8,000 kg. The licensee has to ensure before delivery of despatch to any person that the person/firm to whom cylinders filled with gas are sent is holding a valid licence for kind and quantities despatched save as provided under rule 52(C)(i) under the Gas Cylinder Rules, 1981.
Rule 55 of the Gas Cylinder Rules, 1981 refers to obtaining prior approval of the layout of the bottling plant. On completion of the facilities as per approval the necessary licence for filling/storage is issued. As Ws. Kabsons Gas Equipment Ltd., do not have any bottling plant in Hyderabad, the rule is not applicable. Incidentally it is informed that M/s. Kabsons Gas Equipment Ltd. have recently been granted licence for filling and storage of the LPG in cylinders for their bottling plant at Hosur town, Jujuwadi, Karnataka.
Yours faithfully, Sd/-
(Shambhu Prasad) Controller of Explosives, for Chief Controller of Explosives.
............"
The assessee has also relied strongly on this clarification and argues that because the modality of filling is not specified, assessee is free to have got 1/2 kg. of gas filled in each cylinder as against capacity of 2.3 kg. of each cylinder. He also pointed out that the CCOE himself has confirmed that the storage of M/s. Ideal Engineers is limited to 8,000 kgs. and it is this limitation that explained the so-called abnormality of filling each cylinder only to the extent of 1/2 kg. In other words, it is argued that there is no bar against two step filling of each cylinder adopted by the assessee.
23. The assessing officer followed up the above letter by a fax message dated 22-3-1999, which reads as under
"..................
Dt. 22-03-1999 To The Chief Controller of Explosives, Department of Explosives, Government of India, Nagpur.
Sir, Sub : Request for information under section 133(6) of the Income Tax Act-In the case of M/s. Kabsons Gas Equipment Ltd., Hyderabad-Reg.
Ref : Letter from this office dated 8.3.99 and Reply of Controller of Explosives dated 15-3-99.
Kindly refer to my above referred letter and reply from the Office of Controller of Explosives dated 15-3-99. In the reply, the Controller of Explosives has mentioned that M/s. Kabsons Gas Equipment Ltd. has been permitted vide their office letter No. GC (SC)F-38/AP/GS(SC)S-17/AP, dated 3.5.85 to get their cylinders filled through M/s. Ideal Engineers Hyd. Ltd. subject to observing the relevant conditions of the licences under Gas Cylinders Rules, 1981 and the provisions of Gas Cylinder Rules, 1981. In para (b), it has been clarified by the Controller of Explosives that as stated in para (a), M/s. Kabsons Gas Equipment Ltd. has been permitted to get their cylinders filled in the bottling plant of M/s. Ideal Engineers Hyd. Ltd. However, it does not specify the modality of filling. In paragraph (a), it has also been mentioned by the Controller of Explosives that rule 3(1)(b) refers to individual cylinder with specific reference to its standard, design approval and obtaining filling permission in respect of the said cylinder.
From the above clarification, I understand that M/s. Kabsons Gas Equipment Ltd. has to take a specific approval of the department of Explosives in respect of individual cylinders with specific reference its standard, design approval and obtaining and has to take filling permission in respect of the said cylinders. The letter of Controller of Explosives is not clear whether M/s. Kabsons Gas Equipment Ltd. has taken such approval from the department of Explosives for Financial Years 1992-93 to 1997-98. In case it has not taken the above approval, CCE is requested to clarify whether KGEL can fill in 1/2 kg. gas in the concerned cylinders before loaning it to Primus Kabsons Ltd. In case KGEL, has taken approval of the CCE under rule 3(1)(b) with specific reference to individual cylinders, it is requested that the copies of those approvals may kindly be sent by return of FAX.
3. We understand that this causes inconvenience to the CCE, however, your kind co-operation is solicited as the assessments are getting time barred by 31-3-1999.
Yours faithfully, Sd/-
(Kavita Pandey) Dy. Commissioner of Income Tax Circle-4 (5), Hyderabad.
.............."
The CCOE replied the above FAX message vide his letter dated 22-3-1999, which reads as under
"............
Nagpur, Dated 22/03/99 To The Dy, Commissioner of Income Tax, Circle-4(5), Hyderabad.
Sub : Request for information under section 133(6) of the 1.T. Act, in the case of M/s. Kabsons Gas Equipment Ltd., 7-1-214/1/A, Dharam Karam Road, Ameerpet, Hyd, AYs 93-94 to 97-98-reg.
Madam, Please refer to your fax message dated 22/03/99.
As already informed vide this office letter of even No. dated 15/03/99 that M/s. Kabsons Gas Equipment Ltd., have been permitted vide this office letter No. GC (SC)F-38/AP/-GC(SC)S-171/AP dated 03/05/85 to get their cylinders filled through M/s. Ideal Engineers Hyd. Ltd., subject to observing the relevant conditions of the licence and the provisions of the Gas Cylinder Rules, 1981. From this office record it is seen that filling permissions have been issued in the name of M/s. Ideal Engineers Hyd. Ltd. & M/s. P.K.L. Ltd. (M/s. Primus Kabsons Ltd.) who are holding licences in form 'E' & 'F' of Gas Cylinder Rules, 1981 for filling and storage of the filled cylinders respectively. It is informed that filling permission are not issued on the basis of the financial year but is issued on permanent basis after scrutinizing the manufacturers test and inspection certificates issued by Bureau of Indian Standards and the filling permission valid till the service life of the cylinder. It is for M/s. Kabsons Gas Equipment Ltd., to prove that they have obtained filling permission in respect of the individual cylinders owned by them. To cite an example a copy of this office filling permission No. G.3(42)370/P/PM/99/1 dated 18-03-99 issued in favour of M/s. Primus Kabsons Ltd., covering 59200 Nos. of LPG cylinders is enclosed herewith for your perusal. Now this filling permission covering specific serial Nos. is valid till the entire service life of the cylinders and the said cylinders could be filled in a licenced bottling plant. It is also informed that in absence of a valid filling permission issued under Gas Cylinder Rules, 1981, the cylinder could not be charged even with 1/2 kg. of gas. It is mentioned that no such specific permission was issued to M/s. Kabsons Gas Equipment Ltd. for filling 1/2 kg. of gas in cylinders by this office.
Yours faithfully, Sd/-
(Shambhu Prasad) Controller of Explosives for Chief Controller of Explosives.
..................."
The revenue authorities rely on this clarification and point out that even CCOE has pointed that it is for the assessee to prove that it has obtained filling permission in respect of each individual cylinder owned by it. Assessee relies on this letter in support of its proposition that the filling permission is granted by the CCOE after scrutinizing the inspection report issued by the BIS and the filling permission is valid till the service life of the cylinder. It may however, be observed that this letter of CCOE is not authority for the proposition that the cylinders can be got filled even before the permission has been obtained, even though the permission once obtained may remain valid till the service life of the cylinders.
24. To sum up, the contention, of the learned counsel for the assessee is that the assessee, has nothing to do with any of the sister concerns except for certain percentage in the total share holding of M/s. PKL and that the entire transaction of purchase and loaning of cylinders is at arms length; and that all the steps taken by the assessee in respect of all his three units are in conformity with the legal requirements imposed by the Gas Cylinder Rules and CCOE.
25. The learned counsel for the assessee contended that the decision of the Apex Court in the case of McDowell & Co. Ltd. v. CTO (1985) 154 ITR 148 (SC) has been explained by the Apex Court in CWT v. Arvind Narottam (1988) 173 ITR 479 (SC), in which it was observed that where the true effect of the construction of the deeds is clear, the appeal to discourage tax avoidance is not a relevant consideration. Learned counsel contended finally that the reliance placed by the Commissioner (Appeals) on the decision of Apex Court in the case of McDowell (supra) is totally misplaced. He mentioned that what the assessee adopted was at the worst permissible tax planning and there is actually no bar against such tax planning. In this context, he relied on the decision of the Gujarat High Court in Banyan and Berry v. CIT (1996) 222 ITR 831 (Guj) in which the decision of the Apex Court in the case of McDowell & Co. Ltd. (supra) was explained and it was observed as under
"In McDowell and Co. Ltd. v. CTO (1985) 154 ITR 148 (SC), it was apparent that on the factual aspect the court was considering a case where in a going business a liability to pay duty which was legally of the assessee and which on such payment was to become part of the cost of commodity sold by it and to become part of its selling price to the buyers, was as a result of arrangement between the seller and buyer split into two, namely, duty so far paid separately directly to the tax authorities and the balance so paid to the seller; the arrangement was existing solely for the purpose of not paying the tax and it was not a transaction in reality of receiving a lower price than the one on which it was marketing. The court nowhere said that every action or inaction on the part of the taxpayer which results in reduction of tax liability to which he may be subjected in future, is to be viewed with suspicion and be treated as a device for avoidance of tax irrespective of the legitimacy or genuineness of the Act. The principle enunciated in the above case has not affected the freedom of the citizen to act in a manner according to his requirements, his wishes in the matter of doing any trade, activity or planning his affairs with circumspection, within the framework of law; unless the same falls in the category of colourable device."
26. The learned counsel for the assessee further stressed that the case of the assessee is totally covered by the decision of the Special Bench of the Tribunal in the case of Detective Devices (P) Ltd. (supra) and that the same decision has been followed by the Tribunal in assessee's own cases for the earlier years. In this context, he relied on the decision of the Apex Court in the case of Ambika Prasad Mishra v. State of UP AIR 1980 SC 1762 in support of the proposition that every new discovery or argumentative novelty cannot undo or compel reconsideration of a binding precedent.
He also invited our attention to the decisions of Apex Court in Sri Venkateswara Rice, Ginning & Ground Nut Oil Mill Contractors Co. v. Stale of A.P. AIR 1972 SC 51 in support of the proposition that a coordinate Bench of the same High Court cannot take a view contrary to the decision given earlier by another Bench of that Court, and one is bound by the decision of the earlier Bench.
27. The learned Departmental Representative, on the other hand, clarified that he was pressing for the order of the Commissioner (Appeals) to be sustained and not the order of the assessing officer. In other words, the stand he was canvassing was that the entire transaction of the purchase and loaning of cylinders after filling each of them only by 1/2 Kg. of gas is a sham. He firstly mentioned that the assessee is the patriach of the family, with a distinguished career in engineering and he is advisor to all the concerns in which his family members like sons, daughters, daughters-in-law etc. are Directors. He pointed out that even the Ministry of Petroleum has been referring to the units of the assessee and sister concerns as Kabsons Group of Companies. He also pointed out that the gas supplied by all the concerns of his group is known as Kabsons Gas. It is pointed out that the assessee is the key person in all the concerns involved in the transaction of the so-called purchase and loaning of cylinders, and he is able to avail 100% depreciation on a fake transaction of loaning of cylinders, so as to siphon off the loss from PKL to the assessee, so as to reduce the tax liability of the assessee by a dubious method of tax planning. The assessee in the two years concerned in these appeals, has huge profits, and he planned to reduce tax liability in relation to these profits, by claiming 100% depreciation on the cylinders. But for the claim of depreciation, his taxable income for the assessment year 1994-95, would have been Rs. 23,03,388 instead of returned income of Rs. 6,32,140; and for the assessment year 1995-96 it would have been Rs. 31,30,281 instead of returned loss of Rs. 1,89,280. In support of this proposition, the learned Departmental Representative filed before us, written submissions and chart of permissions received for filling vis-a-vis individual cylinders, and on the basis of the chart, to which we shall advert later, he has argued that the permission from CCOE Nagpur in respect of individual cylinders was received after the so-called loaning of the concerned cylinders was effected, and so, the assessee could not have filled the concerned cylinders with gas, as the requisite permission was not available by the date of loaning, and so, the entire transaction was a make believe. He also, pointed out that the permission in respect of each cylinder was obtained in the name of M/s. PKL and not even a single permission was in the name of the assessee, and the plea of the assessee that it made no difference whether the permission was in the name of the assessee or M/s. PKL was totally unacceptable. Statutory permissions have their own sanctity and it is too much on the part of the assessee to try to convince the Bench that the CCOE was so much over burdened with work that he was giving permissions meant for one entity in the name of another entity, and permissions of different parties in the name of one party. He has invited our attention to the letter of the CCOE dated 22-3-1999, which we have extracted above, in which it was specifically mentioned that it was for the assessee to prove that he had obtained the cylinderwise permission. It is also pointed out that even the CCOE in the said letter has mentioned that it Is not the normal practice to fill each cylinder with only half-kg. of gas, even though it is not violative of any rule. He has also mentioned that the decision of the Special Bench in the case of Detective Devices (P) Ltd. (supra) is altogether on a different issue, and it proceeded on the assumption of a genuine business transaction, and did not have anything to do with a sham transaction, like the one before us. Even otherwise, it is stated that the decision is distinguishable because it dealt with a case where the cylinders were used in assessee's business and were not simply loaned out, even though the Tribunal for earlier years thought it fit to follow the same decision. It is also pointed out that the assessee did riot have any record of the cylinders loaned to the final consumers and for that reason also, the said decision is distinguishable from the f acts of the present case. As already mentioned, the case of the department before us, has not been whether the security deposits received are sale proceeds of the assessee, but that the entire transaction of purchase and loaning of cylinders is a sham transaction. The learned Departmental Representative placed strong reliance on the decision of the Apex Court in the case of McDowell & Co. Ltd. (supra) and argued that it is unimaginable that the assessee thought it fit to fill cylinders as a one time measure with 1/2 kg. of gas and loaned the cylinders and did not have any occasion to have them refilled. It is pleaded that the version of the assessee that the same cylinder which were loaned in Hyderabad came back to him in Flosur or Pune, is too incredible to be accepted. At any rate, there is no evidence of the cylinders coming back to him. The learned Departmental Representative also invited our attention to some of the permissions received in the name of Ws. PKL and pointed out that the permissions referred to series of batches of cylinders and some batches related to PKL and other batches ostensibly relate to the assessee, and it is pleaded that again, it is incredible that the CCOE granted permission in a lot, which included some cylinders of PKL and others of the assessee. It is pointed out that the sale of cylinders must have been effected directly from M/s. Ideal Engineers to M/s. PKL and some of the cylinders were intercepted and routed through the assessee and shown against his name. Finally, it is pleaded that whether the case of the assessee is a sham transaction or not has to be seen in the light of its own facts and the decision of the Apex Court in the case of McDowell & Co. Ltd. (supra) still holds the field, even though it is distinguished in some cases. It is also pointed out that every body has a right to arrange his tax affairs, but the arrangement has to be real and riot a sham. In this context, reliance is placed on the decision of the Apex Court in the case of Jiajeerao Cotton Mills Ltd. v. CIT (1958) 34 ITR 888 (SC), wherein, as per head-note, it has been observed as under
"Every person is entitled so as to arrange his affairs as to avoid taxation, but the arrangement must be real and genuine and not a sham or a make-believe."
28. The learned counsel for the assessee, in his rejoinder mentioned that it is entirely a pre-conceived notion of the revenue that the transaction in question is sham. He mentioned that the assessee purchased gas from M/s. Oswal Petro-Chemicals Ltd., Bombay and transported in bullets or tankers and the cylinders were filled in the station of M/s. Ideal Engineers. He reiterated that parallel marketeers like him under (the Gas Cylinders Rules have a judicious mix of loaned and owned cylinders, and there is nothing out of way in the assessee's transaction of purchase and loaning of cylinders. Replying to the plea of the learned Departmental Representative that the cylinder-wise permissions were not received from the CCOE, Nagpur by the date of loaning of the cylinders to PKL, it is mentioned that the CCOE has to issue permission for all the oil companies in public sector and parallel marketeers for the private sector, and has to issue permissions to about 1 crores cylinders a year and in the process many times post facto permissions are received by convention. It is also reiterated that M/s. Ideal Engineers as manufacturers makes applications to the Controller, Nagpur on behalf of the buyers and the permissions are given in the name of one of the buyers. It is mentioned that PKL itself has a manufacturing plant of cylinders, and even then they bought from M/s. Ideal Engineers and they also take on loan because they have national network of distributors. So, there is nothing do normal about the transaction. It is also mentioned that PKI-is a joint venture company with Primus of Sweden and there has been a Swedish Director right through, and so, notwithstanding the fact that the son of the assessee is a Director there, it cannot be assumed that they would cater to the tax-avoid-needs of the assessee. So, it is pleaded that the revenue authorities have proceeded on surmises and conjunctures and so, their orders deserve to be set aside.
29. We are of the view that the revenue deserves to succeed. Firstly, we will make it clear that it is not a case where the question is whether the security deposits received by the assessee of Rs. 17,28,000 in assessment year 1994-95 and of Rs. 36,00,000 for assessment year 1995-96 has to be treated as sale proceeds of the assessee. So, to this extent, we are of the view that the ratio of the Special Bench decision of the Tribunal in Detective Devices case (supra) does not apply for these years to the assessee, even though for some of the earlier years, the benefit of that decision was extended. In those years, it as not the case of the revenue that the transaction of purchase and loaning of cylinders in question was sham. So, this issue was not before the Special Bench in the case of Detective Devices (supra)or in the case of the assessee for the earlier years.
Nobody can quarrel with the binding nature of a precedent like a decision of the Special Bench of the Tribunal, but when the facts are totally different and the issue is also different, we are of the view that the ratio of that decision cannot be imported.
30. We shall now advert to the reasons that weight with us for agreeing with the stand of the Commissioner (Appeals) that the transaction of purchase and loaning of cylinders is a sham.
31. Firstly, it appears to us that the revenue is not unjustified in assuming that the assessee, Shri G.K. Kabra, is the patriach of the family. He is actually the man behind the various concerns under consideration. It is true that it may be that he does not have substantial share holding in any of the concerns and it may also be that he is not on the board of any of the concerns. But, the fact remains that his family members are Directors in those concerns. For example his son is the Director of M/s. PKL and his daughter is a Director of M/s. Ideal Engineers (Hyderabad) Ltd. It may also be noted that the claim of depreciation in the context of purchase and loaning of cylinders is a device adopted in many of the cases, as pointed out by the learned Commissioner (Appeals). This seems to us to be a mode of dubious tax planning which cannot be given judicial benediction.
32. We have complied from the material given by the assessee and the department, the batchwise details of the certificates obtained and the permissions for filling obtained from the CCOE and the dates of loan to PKL. This batch-wise compilation, to our mind, throws up certain discrepancies which are quite striking. The tabulations made out of the said compilations for each of the two years under appeal, are extracted below. In these tables, particulars in Col. Nos. 1 and 2 relating to batch Nos. and Invoice No. are taken from pages 62 and 63 of the assessee's paper-book No. 1. The dates of BIS certificate in Col. No. 3 is taken from the bundle of certificates separately furnished by the assessee. The date and letter No. of Ideal Engineers in Col. No. 4 and the date of permission of CCOE given in Col. 5 are taken from the permissions given in the name of PKL by CCOE. These permissions have been filed separately before us by the assessee, and these permissions refer to the relevant letter of M/s. Ideal Engineers and the batch No. of the cylinders in respect of which permission is granted. The date of loan in Col. 6 is taken from the subscription vouchers issued by the assessee, filed by the assessee before us. Where the permissions refer to a number of letters and it is not possible to identify a particular batch, that particular letter/letter are mentioned in the column. Where the subscription voucher cannot be identified with a particular batch, it is mentioned that the date of loan is between the first and last date of the relevant vouchers.
33. The detailed tabulation for the assessment year 1994-95 is as under
Batch No. of Empty Cylinders (Each batch consisting of 400 cylinders) Invoice No. & Date of M/s. Detective Devices Date of BIS certificate Letter No. and Date of Ideal Engineers Hyd. to CCOE Date of receipt of specific permission from Explosives Deptt. (Cylinder-wise) Date of loan to PKL by the assessee (1) (2) (3) (4) (5) (6) 606 300 741 Not filed IE/GM/M 13-2-1995 Between 19-3-1994 LG/94/20 24-3-1994 05 & 2008 and Dt. 12-2-1994 & 25-3-1994 26-5-1994 609 300 741 Not filed IE/GM/M/ 13-2-1995
-do-
19-3-1994 LG/94/2008 Dt. 26-5-1994 610 300 741 Not filed
-do-
13-2-1995
-do-
19-3-1994 611 300 741 Not filed
-do-
13-2-1995
-do-
19-3-1994 612 300 741 Not filed IE/GM/M/IG 22-2-1995
-do-
19-3-1994 94/2007 Dt. 12-5-1995 613 300 741 Not filed
-do-
22-2-1995
-do-
19-3-1994 616 300 741 Not filed
-do-
22-2-1995
-do-
Dt. 19-3-1994 617 300 741 Not filed
-do-
22-2-1995
-do-
Dt. 19-3-1994 618 300 741 Not filed
-do-
22-2-1995
-do-
19-3-1994 619 300 741 Not filed
-do-
22-2-1995
-do-
19-3-1994 620 300 742 Not filed
-do-
22-2-1995
-do-
20-3-1994 621 300 742 Not filed
-do-
22-2-1995
-do-
20-3-1994 622 300 742 Not filed
-do-
22-2-1995
-do-
20-3-1994 623 300 742 Not filed
-do-
22-2-1995
-do-
20-3-1994 624 300 742 Not filed
-do-
22-2-1995
-do-
20-3-1994 625 300 742 Not filed
-do-
22-2-1995
-do-
20-3-1994 626 300 742 Not filed
-do-
22-2-1995
-do-
20-3-1994 627 300 742 Not filed
-do-
22-2-1995
-do-
20-3-1994 628 300 742 Not filed
-do-
22-2-1995
-do-
20-3-1994
33. Firstly, it has to be mentioned that all the above batches of cylinders were purchased by the assessee from M/s. Detective Devices (P) Ltd. and not from M/s. Ideal Engineers, but all the letters for filling the cylinders were addressed to CCOE by M/s. Ideal Engineers. It is not clear how M/s. Ideal Engineers came into picture in respect of the above mentioned batches of cylinders for which it was not a manufacturer. It is not clear why the letter was addressed by M/s. Ideal Engineers and not by M/s. Detective Devices, which was actually the manufacturer and supplier of the cylinders to the assessee. It is also not clear why the assessee himself did not write to CCOE, Nagpur for obtaining permission. It has been explained before us that the manufacturer was writing on behalf of all the buyers. But this does not explain why M/s. Detective Devices did not write and why M/s. Ideal Engineers wrote for permission. The manufacturer must be having many customers, but we find from the letters filed before us that M/s. Ideal Engineers had been writing only on behalf of the so called Kabsons group of companies and not other companies. Secondly, the BIS certificate has not been filed in respect of any these batches purchased from M/s. Detective Devices Ltd. It has been the contention of the assessee before us that it is the BIS certificate that proves the ownership. When we asked for BIS certificates in the course of hearing, it was mentioned that they were not readily available and they might be with the manufacturers, viz., M/s. Detective Devices. In the absence of the BIS certificates, even the ownership is not proved. Thirdly all the permissions issued by CCOE, Nagpur are in the name of PKL, and not in the name of the assessee, and when even ownership is not proved it is not clear how the permissions in the name of PKL, can be said to relate to assessee. It may also be observed that all the permissions from CCOE, Nagpur were obtained subsequent to the dates of loan of cylinders to M/s. PKL. For example, the permission in respect of Batch No. 606 was obtained on 13-2-1995, whereas it has already been loaned to PKL on 24-3-1994. It means that the permission was obtained almost 11 months after the date of loan. As admittedly, the cylinders were filled with half-kg. of gas in the year of account relevant for assessment year 1994-95, viz., before 31-3-1994, it means that the cylinders were filled without permission. The contention of the assessee all along has been that his business is under the control of CCOE and that it has complied with all the legal requirements. But, we find a situation where the cylinders are filled without permission. Of course, the assessee has sought to explain that the permission is valid over the entire service life of the cylinder and also that post facto permissions have been received. The contention is unacceptable because even if a permission is valid for entire service life of cylinder, it does not mean that a permission validates fillings effected even before the permission was issued. A permission cannot have retrospective effect. At least, no evidence to this effect has been shown to us or brought to our notice. Even the argument that post facto permissions have been received has no basis. Unless it is shown that a letter seeking post facto permission has been addressed, it cannot be assumed that post facto permissions have been issued or that the permissions have been with retrospective effect.
34. Vide his undated written submissions, the learned counsel for the assessee has mentioned as under
'In this connection, reference can be had to the clarification of the Chief Controller of Explosives vide letter dated 22-3-1999 (submitted during the course of hearing page 1 line 25th) to the effect that.
"Now this filling permission covering specific serial number is valid till the entire service life of the cylinder."
This clarifies the period of validity of the filling permission as covering the entire service life of the cylinders, namely from the date of certification of the cylinder by the Bureau of Indian Standards till the life of the cylinder. The date of permission is therefore of no consequence, whatsoever as the permission shall relate back to the date of BIS certification. It is pertinent to note that Chief Controller of Explosives has not made the permission effective post approval.' The above explanation to our mind is not valid. The clarification given by CCOE in his letter dated 23-2-1999 can mean only that the permission is valid for the entire service life of cylinder after the date of permission. The clarification cannot be read as meaning that the CCOE had given any post facto approval of the filling before the permission was granted. A post facto approval by any public authority involves request for such post facto approval. It is not the case of the assessee that any such request for Post facto approval has been sought for. We find it hard to agree that the date of permission is of no significance or that the permission relates back to the date of BIS certification. It is also pointless to say that the CCOE has not made the permission 'post approval'. Any permission is valid only after the date of permission. There is no need for making it specifically 'post approval'. It is only post facto approval that has to be specified to be so. For these reasons, we find the above stand of the assessee to be unacceptable.
35. From the above table, it may be noticed that M/s. Ideal Engineers wrote to CCOE for filling permission in respect of batches 606 to 611 vide its letter dated 12-2-1994, i.e., before the assessee obtained the said batches from M/s. Detective Devices. The letter dated 12-2-1994 reads as under :
"IE/GM/MI-G/94/2005 12-2-1994 To The Chief Controller of Explosives, Department of Explosives, Government of India, Old High Court Building, Nagpur-440 001.
Sub : Filling permission of 4.8 Litres Water Capacity Cylinders Batch No. C-605 to C-611.
Dear Sir, We are enclosing herewith the test Certificates of Batch No. C-605.to 611 of 4.8 Litres Water Capacity Cylinders along with the detailed statement showing the actual serial number of Cylinders passed as per Annexure A. We request you to kindly accord filling permission for the above said Cylinders and oblige.
Thanking you, Yours faithfully, For Ideal Engineers Hyd. (P) Ltd., Sd/-
(M.L. Goud) Encl : Test Certificate and Statement"
The following note appears on the copy of the letter filed with us "Resubmitted along with our office copies of Test Certificates vide Letter No. IE/GM/MLG/94/2008 dated 26-5-1994 as advised by Mr. Ramdas. This letter is misplaced in CCE Office."
It has been explained that the above letter was misplaced and so, it was followed up by another letter dated 26-5-1994, which reads as under
"IE/GM/MLG/94/2008 26-5-1994 To The Chief Controller of Explosives, Department of Explosives, Government of India, Old High Court Building, Nagpur-440 001.
Sub : Resubmission for the Filling permission of 4.80 Litres water Capacity Cylinders Batch No. C-605 to C-611.
Ref. : Our Letter No. IE/GM/MLG/94/2005 Dated 12-2-1994.
Dear Sir, As advised to our representative Mr. Ramdas, we are enclosing herewith our office copy of the Test Certificate of Batch No. C-605 to C-611 of 4.80 Litres Water Capacity Cylinders along with the detailed statement showing the actual Serial Numbers of Cylinders passed as per Annexure 'A' as the original submitted along with our above letter dated 12-2-1994 is still being searched in your office.
We request you to kindly accord filling permission for the above said Cylinders and oblige.
Thanking you, Yours faithfully, for Ideal Engineers Hyd. (P) Ltd.
Sd/-
(M.L. Goud) Encl : Office copy of Test Certificates and Statement.
.............."
The above two letters throw up some discrepancies, which have not been explained before us. Firstly, as already mentioned, it is not clear how M/s. Ideal Engineers has come into picture as a manufacturer to seek permission on behalf of the assessee, when actually the cylinders were obtained from another supplier, viz., Detective Devices. Secondly, it is not clear how the letter seeking permission of CCOE dated 12-2-1994 came to be addressed even before, viz., more than a month before, the assessee obtained the cylinders from M/s. Detective Devices Ltd. on 19-3-1994. Such transactions can prevail only between obliging sister concerns.
36. As pointed out by the learned Departmental Representative, permissions given by the CCOE to PKL, refer not only to the batches of cylinders purchased by the assessee, but also to the batches belonging to other concerns. For example, certificate dated 13-2-1995 reads inter alia as under
"Sub :5600 Nos. of LPG cylinders bearing Sr. Nos. ranging from 242757 to 245174 & 277042 to 280235 as per Annexure B having water capacity 4.8 litres covered under Cert. Nos. IE/BIS/PK/C-606 to C-608 dated 4-2-1994 C-609 to C-611 dated 8-2-1994, C-690 to C-692 dated 17-5-1994, C-693 to C-695 dated 19-5-1994, C-696 & C-697 dated 22-5-1994 conforming to IS : 12586-specification filled with valves of IS : 8776 (Type-C) manufactured by M/s. Ideal Engineers Hyderabad (P) Ltd., Hyderabad inspected certified by BIS-Permission for filling.
.........."
It may be observed that only batches Nos. C-606 and 609 to 611 are purchased by the assessee, whereas the same permission refers to Batch Nos. 607 and 608 and others, which are not purchased by the assessee. The relevant certificate issued by the BIS is dated 4-2-1994 and covers batches Nos. C-606 to C-608 and it is not clear how the certificate issued by BIS also consolidated the batches relating to the assessee and other concerns. The permission of CCOE was issued in response to M/s. Ideal Engineers Hyderabad's letter dated 26-5-1994. It is not clear how M/s. Ideal Engineers has consolidated the batches belonging to different concerns inclusive of the assessee. Similar position can be noticed from the other permissions issued by CCOE and certificates issued by BIS. It leads to the inference as pointed out by the learned Departmental Representative that a particular batch series was broken and the name of the assessee was got inserted in respect of some batches of cylinders, and also that the assessee and his sister concerns operated as found convenient without regard to the fact that they are, on paper, separate legal entities.
37. Corresponding tabulation for the assessment year 1995-96 reads as under
Batch No. of Empty Cylinders (Each batch consisting of 400 cylinders) Invoice No. & Date of M/s. Ideal Engineers Hyd. P. Ltd.
Date of BIS certificate Letter No. and Date of Ideal Engineers to Controller to Explosives Date of receipt of permission from Explosives Deptt.
Date of loan to PKL by the assessee (1) (2) (3) (4) (5) (6) 876 177 8-10-1994 IE/GM/MLG/-
22-2-1995 Between Dt. 27-10-1994 94/2018 & 1-11-1994 2019 dt.
& 24-2-1995 28-10-1994 893 177 21-10-1994
-do-
22-2-1995
-do-
Dt. 27-10-1994 894 178 21-10-1994
-do-
22-2-1995
-do-
Dt. 28-10-1994 895 178 27-10-1994
-do-
22-2-1995
-do-
Dt. 28-10-1994 896 179 27-10-1994
-do-
22-2-1995
-do-
Dt. 28-10-1994 897 179 27-10-1994
-do-
22-2-1995
-do-
Dt. 28-10-1994 898 181 27-10-1994
-do-
22-2-1995
-do-
Dt. 28-10-1994 899 181 27-10-1994
-do-
22-2-1995
-do-
Dt. 28-10-1994 900 185 27-10-1994
-do-
22-2-1995
-do-
30-10-1994 901 185 27-10-1994
-do-
22-2-1995
-do-
30-10-1994 904 206 30-10-1994 IE/GM/MLG/ 29-10-1995
-do-
22-11-1994 94-2009, 2015, 2027,2028, 2033 dated 2-6-94, 21-9-1994, 11-1-1995, 16-2-1995 & 8-4-1995 933 206 17-11-1994
-do-
29-10-1996
-do-
22-11-1994 944 207 23-11-1994
-do-
29-10-1996
-do-
24-11-1994 945 207 23-11-1994 IE/GM/MLG/ 20-12-1995
-do-
24-11-1994 94/-2014 dt. 30-12-1994 938 209 23-11-1994 No permission No permi-
-do-
26-11-1994 to fill ssion to fill 939 209 23-11-1994
-do-
-do-
-do-
26-11-1994 940 213 23-11-1994 IE/GM/MLG/ 29-10-1996 Between 27-11-1995 94/2009,2015, 1-11-1994 2027, 2028 & 24-2-1995 2033 dated 2-6-1994 21-9-1994, 11-1-1995 16-2-1995 & 8-4-1995 941 213 23-11-1994
-do-
20-10-1996
-do-
27-11-1995 972 241 11-12-1994 IE/GM/MLG/ 22-2-1995
-do-
20-12-1994 94-/2014 dt. 30-12-1994 983 241 15-12-1994
-do-
22-2-1995
-do-
20-12-1994 984 242 15-12-1994
-do-
22-2-1995
-do-
21-12-1994 985 242 15-12-1994
-do-
22-2-1995
-do-
21-12-1994 986 243 18-12-1994
-do-
22-2-1995
-do-
21-12-1994 987 242 18-12-1994
-do-
22-2-1995
-do-
21-12-1994 988 244 18-12-1994
-do-
22-2-1995
-do-
23-12-1994 989 244 18-12-1994
-do-
22-2-1995
-do-
23-12-1994 990 244 20-12-1994
-do-
22-2-1995
-do-
23-12-1994 200 Cylinders only) 991 245 20-12-1994
-do-
22-2-1995
-do-
23-12-1994 1000 245 23-12-1994
-do-
20-2-1995
-do-
23-12-1994 992 246 20-12-1994
-do-
20-2-1995.
-do-
23-12-1994 1001 246 23-12-1994 IE/GM/MLG/ 20-2-1995
-do-
94/2009,2015, 2027,2028,2033 Dt. 2-6-1994, 21-9-1994, 21-1-1995, 16-2-1995, 8-4-1995 1087 313 19-2-1995 IE/GM/HND/ 24-1-1997
-do-
21-2-1995 2057 10-2-1996 1088 313 19-2-1995
-do-
24-1-1997
-do-
21-2-1995 1089 315 19-2-1995
-do-
24-1-1997
-do-
21-2-1995 1090 315 19-2-1995 IE/GM/HND/ 24-1-1997 Between 21-2-1995 2057 dt. 10-2-1996 1-11-1994 & 24-2-1995 1091 316 22-2-1995
-do-
24-1-1997
-do-
23-2-1995 1092 316 22-2-1995
-do-
24-1-1997
-do-
23-2-1995 1093 317 22-2-1995 Lr. No. Nil 9-3-1999
-do-
23-2-1995 dt. Nil
38. For this year, the assessee could not furnish the batchwise details of the exact dates of loan to PKL. The assessee has furnished certain subscription vouchers relating to the loaning of the said cylinders, and the subscription vouchers give the following details of the number of cylinders allegedly loaned vide each voucher---
Subscription Voucher No. Date Quantity 500010 1-11-1994 800 500011 2-11-1994 800 500012 4-11-1994 800 500013 4-11-1994 800 500014 5-11-1994 800 500015 25-11-1994 800 500016 26-11-1994 800 500017 29-11-1994 800 500018 30-11-1994 800 500019 22-12-1994 800 500020 23-12-1994 800 500021 24-12-1994 800 500022 24-12-1994 10000 500023 25-12-1994 800 500024 25-12-1994 800 500025 23-02-1995 800 500026 23-02-1995 800 500027 24-02-1995 1,200 Total 15,000 It is explained that no record has been maintained as to which voucher relates to each of the batches loaned. So, in the above tabulation, the dates of loan are taken as falling between 1-11-1994 and 24-2-1995, as all the vouchers fall between these two dates.
39. When we asked for the dates of loan, dssessee gave an explanation, which reads as under
"Cylinders supplied on loan are from the stocks available at any given time. Customers may have in one Subscription Voucher Cylinders belonging to more than one batch. Cylinders are not supplied batchwise. In any case, all cylinders get mixed up once they enter in service.
Clarifications :
1. Cylinders loaned by assessee are for supply of LPG. These cylinders circulate between the various customers and assessee all the time during its service life.
2. Same cylinders never remains in the hands of customer as every time the customer gets refill in exchange with empty cylinder, he gets a different cylinder.
3. Cylinders being plant of the assessee for supply of LP Gas are stored as such. The quantity required by the customer is supplied against the loaning document namely subscription voucher.
4. Cylinders being the property of Assessee, assessee maintains all records as per statutory requirements. These records are not passed on to any customer/dealer/distributor etc.
5. Customer has no liability whatsoever in respect of LPG cylinders, which he is using only for the duration, the gas sold to him is consumed. Consumer either has a right to return the empty cylinder and get a refill by way of another cylinder or returns the cylinder back to assessee and gets refund of the Deposit.
6. The object of subscription voucher being only to loan the cylinder for the supply of LP Gas in the required quantity of cylinders to customers and collect Security Deposit for the quantity supplied at the scheduled rate per cylinder as deposit at the terms printed overleaf. The information required in the, subscription voucher therefore is only the quantity of cylinders, the rate at which the Security Deposit was collected and total deposit collected.
7. The records maintained by the assessee in respect of purchases, Batch Nos., Cylinder Nos. etc. is the property of assessee and the same is of no relevance to the customer who has no liability whatsoever on cylinders or arising out of the cylinder.
8. Refund of Security Deposit on return of cylinder being the obligation of assessee with or without the subscription voucher, is possible only in existing subscription voucher terms. Inclusion of Batch Nos. in subscription voucher would make return of cylinder and deposit refund impossible since the customer could never be able to return the cylinder belonging to particular batch which he had received the very first time.
9. Customer has only to return the cylinders for obtaining refund of Security Deposit either to dealer, distributor or assessee's representative and the cylinder returned is identified by the ownership logo of Assessee.
The inclusion of Batch Nos. shall be in contradiction of the terms of loaning.
10. The practice of subscription vouchers carrying only the quantity of cylinders loaned and amount of refundable deposit, being only practical, is consistent with the practice in the trade, the Public Sector Oil Companies also doing exactly the same.' We do not see the significance of the above explanation. What we asked was the dates on which the specific batches of cylinders were given on loan. On the one hand, the assessee claims that he maintained all the records of the cylinders as per statute. On the other hand, his stand was that the particulars of the dates on which particular batches were given on loan were not available. The claim that the subscription vouchers carried only the number of cylinders loaned and not the batch numbers and that such a practice is consistent with the practice of public sector oil companies is, to our mind, quite misleading because the claim of the assessee is that it obtained batchwise and even cylinderwise permission from CCOE and in the absence of batch numbers of the cylinders loaned, it is not clear how the assessee can claim that the cylinders loaned are permitted by CCOE to be filled. Further, it is the claim of the assessee that he is the owner and he has to maintain the record of the cylinders. When the assessee does not maintain even the record of the batches of cylinders loaned, it is not clear how the assessee can claim to have maintained the record of the cylinders. Cylinders were loaned in bulk and we do not see why the assessee could not furnish the batches which were involved in each subscription voucher. The entire explanation seems to obfuscate the issue. In the absence of necessary details, we have adopted in the above table, the date of loan as falling between the first and last dates of the concerned subscription vouchers.
40. It may be observed that in respect of almost all the batches allegedly covered and relevant for assessment year 1995-96, the date of BIS certificate precedes the date of invoice. The main plank of the assessee's case before us has been that the BIS certificate proves the ownership, and as the certificates are available with the CCOE before he grants the cylinderwise filling permission, it is immaterial that the permission stands in the name of PKL and not in the name of the assessee. It appears that this plea has to be rejected, inter alia, for the reason that the BIS certificates as evidenced by the above table, have preceded the date of invoice. In other words, even before the assessee has purchased a particular batch of cylinders, BIS certificate lias been obtained showing the assessee as owner. Such an arrangement is possible only among obliging sister concerns.
41. When the filling permission is given in the name of PKL, it must be assumed that the permission is given only to ML and not to the assessee. Simply because the assessee is shown as a owner on the BIS certificate, it does not appear to follow necessarily that the permission given to PKL has to be treated as relating to the assessee. Apparently, the CCOE is interested only in the safety specifications of a particular cylinder, and so requires the BIS certificate for issuing filling permission. In other words, he is interested in the certificate from the technical angle as to standards and safety. He may also be interested in the identity of the person, who seeks permission, whether owner or not. It has also to be assumed that the CCOE is interested in the identity of the owner but it is not clear from record how the BIS certificate has preceded the invoice in the name of assessee as buyer. The assessee must have been shown as the owner in the BIS certificate before lie bought the concerned cylinders only because the suppliers were sister concerns and were obliging. It is also not clear how the assessee filled the cylinders with 1/2 kg. gas and loaned them to PKI, before the cylinderwise permission for filling either in the name of assessee or PKI, was received from CCOE. It can only mean that either the assessee flouted the relevant rules or that the entire transaction. was a sham and the latter seems to be more the case as held by Commissioner (Appeals). In his letter dated 22-3-1999, the CCOE has clearly mentioned that it is for the assessee to prove that cylinderwise permission has been obtained by him. Cylinderwise permission relating to the batches allegedly purchased by the assessee stand in the name of the PKI, and, as already mentioned, they do not reflect the assessee as the licencee or permit holder. As we have already mentioned, it is difficult to accept the plea of the assessee that the permission standing in the name of PKL has lo be interpreted as relating to the assessee. Assessees explanation is clearly an attempt to explain away the fact that the permission in respect of any of the batches does not stand in its name. The permission was not obtained even by the PKI, on behalf of the assessee, before the assessee filled the cylinders with 1/2 kg. of gas in each and gave them on loan.
42. The above discrepancies-each by itself-may not be sufficient to prove that the alleged purchase and loaning of cylinders by the assessee is a sham transaction. But, it is the cumulative effect of those discrepancies that clinches the issue, and leads to the inevitable conclusion that the entire transaction in question is sham, as held by the Commissioner (Appeals).
43. Further, the transaction may be considered from a commercial angle. It is not the case of the assessee that he has leased out the cylinders for use in the gas business of PKL. No lease rental has been received or disclosed. What has been gained by the assessee, by the so-called purchase and loaning of cylinders to M/s. PKL? The only gain is the receipt of security deposit, which covers the cost of the cylinders. According to the assessee, the security deposit is refundable and so, it cannot be called income. Hence, nothing else remains to the assessee for all his labour. The only gain is by way of deduction for depreciation. This, according to us, is a dubious way of tax planning because there is no business of gas sales. The gas sales in Kabsons Control are marginal. Actually each cylinder is filled only once. There is no repetitive filling, which should be there in a regular gas business. Such repetitive filling was there in the case of Detective Devices considered by the Special Bench of the Tribunal (supra). So, the only filling done by the assessee is to the extent of 1/2 kg. of gas in each cylinder while the capacity of each cylinder is 2.3 kgs. Even the CCOE in his letter dated 15-3-1999, mentioned that it is not normal practice to fill 1, kg. initially. The assessee has issued separate invoices for the sale of gas and has issued separate subscription vouchers for the loaning of cylinders. The assessee had to show some purchase of gas only to prove that the cylinders in question were utilised in gas business and so, they constituted plant and so, eligible for depreciation. It is the logic of the claim of depreciation that led to the purchase of gas. The purchase of gas was nominal and just sufficient to put up a pretence of regular business. In other words, the purchase of cylinders and gas was only to serve the twin claims of security deposit being not taxable in the light of the Special Bench decision in the case of Detective Devices (supra) and the claim of depreciation. The plea of the assessee that the cylinders loaned to PKI-in Hyderabad came back to him for refilling in Tamil Nadu or Maharashtra is far fetched, and is quite remote from reality and at any rate, there is no evidence in support of such a claim. The contention of the assessee that to ascertain the turnover of the assessee in respect of gas business, all the three units, i.e., in Hosur(Tamil Nadu), Pune (Maharashtra) and Hyderabad should be considered together is, to our mind, without substance. The three units are in three separate States, and it is too much to claim that the cylinders loaned in Hyderabad found their way to the assessees filling stations in Hosur or Pune. Even as per the assessees own description of the business of Kabsons Control, which we have reproduced in para 2 above, the main business of the assessee is only manufacture of LPG valves and regulators, and its dealing in gas is nominal. Further contention of the assessee that the order of the Commissioner (Appeals) does not seem to be the one passed on him, as it takes into account only the gas sales in Hyderabad is again without substance, as what has to be considered is only the gas sales in Hyderabad and not gas sales in Hosur or Pune.
44. The question is not whether the assessee has complied with all the legal requirements. As we have tried to show, for the assessment year 1994-95, the cylinders were filled even before the permission was obtained. So, there appears to be a violation of legal requirement. That is, however, not our concern. Even if all legal requirements were complied with, it does not by itself mean that a particular transaction is not a sham. Most sham transaction put up a facade of compliance with legal requirements. As held by the Apex Court in the case of CIT v. Durga Prasad More (1971) 82 ITR 540, it is the duty of the assessing officer to go behind the facade and see the ulterior design. As is evident from the details given in the order of the Commissioner (Appeals), M/s. Kabsons group of concerns seem to have adopted a scheme of dubious tax planning. As already mentioned, we are of the view that the tax planning adopted is of such a type which cannot be given any judicial benediction. We have indicated the various licences obtained by the assessee. But these licenses do not explain the defects and discrepancies noticed by us on (lie basis of the above two tabulations for the assessment years 1994-95 and 1995-96.
45. For the foregoing reasons, we are of the view that the entire scheme of the purchase of the cylinders and loaning of the same with the twin objectives of claiming 100% depreciation and exemption in relation to security deposit amount received on such loaning, was a sham, and hit by the decision of the Apex Court in the case of McDowell (supra), and the, cases relied by the learned counsel for the assessee in this behalf are distinguish able. In the case of Arvind Narottam (supra), the Apex Court was considering a issue relating to the construction of a deed and it held that where the language of a deed is plain and admits of no ambiguity, there is no scope for consideration of any tax avoidance. In the case of Banyan & Parry (supra) considered by the Honble Gujarat High Court, the decision was based on the finding of the Honble High Court that the transfer of a business in that case was genuine, and it was not a device to avoid tax. What is a sham transaction has to be decided in the light of the facts of the case and where a question of fact is involved, decided cases are of only limited assistance. We are of the view that the facts of the present case have to be seen in their own light and they lead to the cleat. conclusion that the so-called purchase and loaning of cylinders after filling them with kg. of gas are sham transactions in both the years, arid so, the assessee is not entitled for depreciation for both the years. As held by the Apex Court in the case of Jiyajeerao Cotton Mills Ltd. (supra), cited by the learned Departmental Representative, the assessee is free to arrange his tax affairs, but such an arrangement cannot be a sham.
46. In the light of the above discussion, we uphold the orders of the Commissioner (Appeals) and reject the contentions of the assessee in these appeals.
47. In the result, both the appeals of the assessee are dismissed.